This Tech Giant Is a Stock Buyback Leader. Here's What That Means for Investors.

How does a company provide ever-rising value to its shareholders? Most people would simply say by growing. And they'd be right.

Merely growing its top line isn't the only way a company can bolster shareholder value, though. It can be just as fruitful to simply reduce the number of outstanding shares of an organization, thus making the remaining outstanding shares more valuable by virtue of making them at least a little more scarce. Indeed, for some companies, such stock buybacks are how most of their stocks' net gains are produced.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

The funny thing is, this approach to value-building isn't limited to the value stocks of cash-cow companies well known for their share repurchases. A handful of technology growth companies are just as generous in this way, with the results to prove that it matters. And one particular tech name is arguably an even better buy specifically because of its stock buyback pedigree.

That company? Google parent Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). Here's a closer look at just how much value-building it's been doing by taking its shares out of circulation.

But first things first.

What's a stock buyback?

If you're not familiar with them, stock buybacks are precisely what they sound like. Rather than issuing more shares to raise funds -- and dilute existing shareholders' stakes as a result -- the company in question will reduce its number of outstanding shares by using its own cash to buy its own stock on the open market (just as any ordinary investor would). This stock is then held indefinitely by the company to either resell at a later date or give to employees as part of their compensation, or in some cases the repurchased shares are outright retired, making the move a far more permanent one.

In all instances, a buyback reduces the official number of issued and outstanding shares. This reduction ultimately means that per-share earnings can be beefed up, since there's less stock to divvy up profits among. Ditto for money earmarked for dividends.

It's a completely discretionary decision, by the way. Some companies never buy back their stock, while others never seem to stop doing so.

As one might imagine, the more consistently profitable a company is, the bigger and more persistent any stock-buyback regimen tends to be.

Second-best of the best

In this vein, it comes as no surprise that Apple (NASDAQ: AAPL) spent more on share repurchases through the first three quarters of last year than any other company. It is the world's biggest and (usually) most profitable company, after all. As The Motley Fool's own in-house research arm reports, the iPhone maker spent more than $77 billion buying its own stock back during the first three-fourths of calendar year 2024.

Perhaps the far more impressive stock repurchaser within the technology sector, however, is the sector's second-biggest spender. That's the aforementioned Alphabet. It bought back nearly $47 billion of its own stock during the first nine months of last year, versus its market cap of $1.9 trillion.

Connect the dots. On a proportional basis, Alphabet has been spending about as much of late as Apple has on stock buybacks.

As for its net benefit to shareholders, Alphabet's total outstanding share count was reduced from just over 12.6 billion as of the end of 2023 to less than 12.4 billion as of the end of last year. That's not a huge change -- only about 2% less. It makes its remaining shares 2% more valuable than they would have otherwise been, though, and it's a reliable pace of share-count reduction that's been underway since 2019. Indeed, while Apple's stock buybacks seem to be slowing down just a bit, Alphabet's are still going about as strong as they have been for years.

Data by YCharts.

Add it to the list of good reasons to buy

Stock buybacks alone aren't the only reason to step into a stake in a particular company. Indeed, it's arguably one of the lesser reasons to do so. First and foremost an organization should be able to consistently grow its top and bottom lines by virtue of remaining competitive. Just because a company never repurchases its own shares, in fact, isn't a reason to steer clear of that name.

Consistently generous stock buybacks certainly don't hurt the bullish argument, though, if for no other reason than they confirm a company's confidence and commitment to its own future success.

More to the point for investors, anyone eyeing a potential position in Alphabet now has one more reason to get on board. It's not just a company with a healthy stock-repurchase program that consistently adds net value to its shares. It's one of the top buyback names in the entire technology sector.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $285,647!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $42,315!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $500,667!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

Continue »

*Stock Advisor returns as of April 1, 2025

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Apple. The Motley Fool has a disclosure policy.